Publications

Countries choose different strategies when responding to crises. It is challenging to
assess the impact of these policy choices on key variables, however, because of endogeneity and
selection bias. This paper addresses these challenges by using propensity-score matching to
estimate how major reserve sales, large currency depreciations, substantial changes in policy
interest rates, and increased controls on capital outflows affect real GDP growth, unemployment,
and inflation during two periods marked by crises, 1997 to 2001 and 2007 to 2011. We find that
sharp currency depreciations and major reserve sales significantly raise GDP growth (albeit with
a lagged effect and after an initial contraction) and also increase inflation (especially
depreciations). These policies have weaker benefits and greater costs in emerging and non-
OECD economies (especially reserve sales). Estimates also show that increasing interest rates
and new controls on capital outflows significantly lower GDP growth.